Business news from Ukraine

Ukraine’s external gross debt rose to 92.7% of GDP – NBU

The volume of Ukraine’s gross external debt increased by $8.8bn during the second quarter of this year and amounted to $148.6bn at the end of the half-year, according to the website of the National Bank of Ukraine (NBU).
“Relative to GDP, the debt increased from 90.5% to 92.7%,” the National Bank noted.

At the same time, the external debt of the public sector for the second quarter of 2023 increased by $8.4 billion to – $84.5 billion (52.7% of GDP), while the debt of the private sector – by $0.4 billion to $64.1 billion (40% of GDP).

As indicated by the National Bank, the growth in the public sector was due to net attraction of $8.8 billion in loans from international partners, including $3.6 billion from the International Monetary Fund (IMF), while the government debt on securities decreased by $0.12 billion.

According to the central bank, the volume of external liabilities of Ukrainian banks decreased by $0.08bn to $1.8bn (1.1% of GDP), mainly due to the reduction of debt on loans by a similar amount.
External debt of other sectors of the economy increased by $0.2bn to $41.3bn (25.8% of GDP). As explained by the regulator, this was due to the growth of external debt on guaranteed loans – by $0.14 billion and securities – by $0.05 billion.
Debt of other sectors of the economy, including intercompany debt, increased by $0.52 billion to $62.3 billion (38.9% of GDP) in the reporting quarter.

Direct intercompany debt of enterprises in direct investment relations increased by $0.28 billion to $21 billion (13.1% of GDP) in the quarter due to the increase in external debt on credits and loans of direct investors by $0.26 billion.

The NBU estimated the increase in private sector debt due to exchange rate changes at $0.4 bln.
The volume of overdue debt of the real sector on non-guaranteed loans (including from direct investors) increased by $0.13bn in April-June and amounted to $25.4bn (15.9% of GDP) at the end of the second quarter. According to the NBU, the share of Cyprus in it is 58.1%. In addition, the shares of the UK increased by 1 percentage point (p.p.), to 9.2%, and the Netherlands – by 3 p.p., to 5.8%.

According to the National Bank, Cyprus at the end of the second quarter remained the main creditor country in terms of the geographical structure of private sector debt on non-guaranteed loans (together with intercompany debt) – 49.2% of the total volume, its share since the beginning of the year increased by 0.4 p.p.

The shares of the Netherlands, Germany and Switzerland increased by 0.1 pp. to 7.3%, 3.0% and 2.6% respectively, while the share of the USA remained at 3.0% and the shares of the UK and Luxembourg decreased by 0.1 pp. – to 10.7%.

The main currency of Ukraine’s external borrowings at the end of Q2 2023 remains the US dollar – 50% of total external debt, but its share decreased by 3 p.p. over the quarter. At the same time, the share of borrowings in euros increased from 31.9% to 33.8%, as well as in SDRs to the IMF – from 9.9% to 11.4%, while the share of external debt in hryvnia decreased by 0.2 p.p. to 1.6%. – to 1.6%.
The volume of short-term external debt by residual maturity for the second quarter of 2023 increased by $1.2 billion and amounted to $40.8 billion as of June 30, 2023.

Meanwhile, general government liabilities that require repayment over the next 12 months increased by $0.9 billion to $3.8 billion due to higher future government loan repayments, including $0.2 billion to the IMF, while central bank repayments decreased by $0.18 billion to $1.3 billion due to lower IMF repayments.
The volume of short-term liabilities of the banking sector remained almost at the level of the previous quarter and amounted to $1.3 bln.

The total volume of real sector borrowings (together with intercompany debt), which are to be repaid over the next 12 months, increased by $0.5bn and amounted to $34.4bn as of June 30, 2023. The National Bank specified that the growth is due to an increase in the volume of future repayments on debt securities by $0.4bn.

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Economy Ministry forecasts acceleration of Ukraine’s GDP growth to 5%

The gross domestic product (GDP) of Ukraine after a decrease in the first quarter of 2023 by 10.5% against the first quarter of 2022 in the second and third quarters switched to growth, is indicated in the explanatory note to the government’s draft state budget for 2024.

“According to estimates of the Ministry of Economy, at the end of eight months, growth is 3%,” the document says.

According to it, “certain types of economic activities” managed to quickly adapt to the consequences of the destruction of the dam of the Kakhovskaya HPP.

“Better than expected results of economic activity are due to the rapid adaptation of enterprises to the new conditions of activity together with the recovery of domestic demand, which was the traditional driver of growth of the Ukrainian economy in previous years,” – noted in the explanatory note.

First Deputy Prime Minister and Minister of Economy Yulia Sviridenko announced last week that the forecast for GDP growth in 2023 had been raised to 4%, but the explanatory note still says that the economy will grow by 2.8% this year with inflation at 14.7%, although it fell to 8.6% in August.

According to the explanatory note, the Ministry of Economy as of mid-June this year predicted GDP growth next year by 5% with inflation falling to 10.8% at the end of the year.

The National Bank of Ukraine in late July raised its forecast for Ukraine’s GDP growth in 2023 from 2% to 2.9%, but lowered it for 2024 from 4.3% to 3.5%. In addition, the NBU improved its inflation estimate this year from 14.8% to 10.6%, and next year – to 8.5%.
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European Commission worsens eurozone GDP growth forecast

The European Commission (EC) has downgraded its forecast for eurozone economic growth in 2023 to 0.8% from the previously expected 1.1%.

In 2024, eurozone GDP is expected to grow by 1.3% rather than 1.6%, the EC said in a review.

The forecast for EU economic growth for this year has been worsened to 0.8% from 1% and for next year to 1.4% from 1.7%.

“The latest statistical data confirm that economic activity in the EU has been subdued in the first half of 2023 due to the severe shocks facing countries in the region. Weakness in domestic demand, especially consumer spending, shows that high prices for most goods and services are putting more pressure on the economy than we believed in our previous forecast,” the survey said.

“The sharp contraction in bank lending suggests that monetary tightening in the euro area is having an impact on the economy,” the EC said. – Various surveys point to a slowdown in economic activity over the summer and the following months. Weakness in the industrial sector persists, and the impetus for growth in the services sector is weakening”.

EC experts emphasize that the situation in the world economy in the first half of the year was slightly better than expected, despite the weak dynamics in China. Nevertheless, the EC forecasts for the world economy and international trade volumes are practically unchanged, which means that European countries cannot count on support from external demand.

The EC expects global GDP to expand by 3.2% both this year and next year.

“The momentum towards slower growth in the EU is likely to continue into 2024, as tight monetary policy will continue to constrain economic activity. At the same time, we expect GDP growth to pick up slightly next year as inflation slows, the European labor market remains strong and household incomes gradually recover,” the EC review said.

The eurozone inflation forecast (HICP index) for this year has been lowered to 5.6% from 5.8%, for next year – raised to 2.9% from 2.8%. In the EU, according to the EC’s updated forecast, inflation will be 6.5% this year (previously 6.7%) and 3.2% next year (previously 3.1%).

The EC expects that energy prices in Europe will continue to decline until the end of 2023, but more slowly than before. At the same time in 2024 they may again slightly increase due to the expected rise in oil prices.

The EC review notes that the war in Ukraine and other geopolitical factors still carry risks for Europe.

In addition, experts warn that the tightening of monetary policy may put more pressure on the economy than expected at the moment. On the other hand, it may lead to a faster easing of inflation and, accordingly, accelerate the recovery of real incomes, the review notes.

According to the EC’s forecast, Germany’s GDP will contract by 0.4% in 2023 and grow by 1.1% next year. Previously expected to increase the first indicator by 0.2%, the second – by 1.4%.

France’s economic growth forecast for 2023 has been raised to 1% from 0.7%, for the next year it has been lowered to 1.2% from 1.4%.

Italy’s economy is expected to grow by 0.9% and 0.8% in 2023 and 2024 respectively, while Spain’s is expected to grow by 2.2% and 1.9%.
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Ministry of Economy of Ukraine has raised its GDP growth forecast

The Ministry of Economy has raised its forecast for Ukraine’s gross domestic product (GDP) growth in 2023 to 4%, First Deputy Prime Minister and Minister of Economy Yulia Svyrydenko said in Kyiv on Saturday at the annual meeting of the Yalta European Strategy organized by the Victor Pinchuk Foundation.

“This year, we believe that GDP growth will be 4%, although pessimists believe that 3%… We have maintained macro stability, this is the basis for further recovery of Ukraine,” she said.

Svyrydenko clarified to Interfax-Ukraine that the government has not yet approved the forecast for 2024, while the National Bank of Ukraine expects GDP growth of 3.5%, and up to 6.8% in 2025.

“We are always more optimistic than the National Bank,” the First Deputy Prime Minister and Minister of Economy said.

She added that inflation, according to the NBU’s forecast, will slow to 10.6% this year, and core inflation to 9%.

In her speech, the First Vice Prime Minister also reminded that the NBU had recently cut the discount rate to 22% per annum.

“As a participant in this discussion, I will say that I was in favor of a bigger reduction. I think that our macroeconomic situation allows us to be more flexible, but, as always, realistic,” Svyrydenko said.

According to her, the Ministry of Economy sees improvements in the agricultural sector and expects that in November a working instrument for military insurance will be created through the efforts of both the Ukrainian government and the European Bank for Reconstruction and Development (EBRD).

The First Deputy Prime Minister emphasized that the government is also actively working on a four-year development plan under the Ukraine Facility program announced by the EU, which will start operating in early 2024 and will become the basis for further growth of its economy.

As reported, in June, the Ministry of Economy slightly downgraded its GDP forecast for this year from 3.2% to 2.8% due to the destruction of the Kakhovka hydroelectric power plant and pessimistic expectations for the upcoming harvest. According to Natalia Gorshkova, Director of the Strategic Planning and Macroeconomic Forecasting Department of the Ministry of Economy, in early August, the Ministry had already assumed economic growth of 5% in 2023, but so far it has conservatively maintained the 2.8% estimate, taking into account the existing risks. At that time, the Ministry of Economy predicted that GDP growth would accelerate to 5% next year, with inflation slowing to 10.8%.

At the end of July, the National Bank of Ukraine raised its forecast for Ukraine’s GDP growth in 2023 from 2% to 2.9%, but lowered it for 2024 from 4.3% to 3.5%. In addition, the NBU improved its inflation estimate this year from 14.8% to 10.6%, and next year to 8.5%.

In August, inflation in Ukraine fell to 8.6% in annual terms.

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International experts predicted a slowdown in global GDP growth

Stably high interest rates in the world’s largest economies mean that global economic growth is likely to slow in 2024 after this year’s rate of recovery exceeded expectations, the Financial Times writes, citing the opinion of economists.

Thus, according to the forecast of the consulting company Consensus Economics, in 2024 GDP will grow by 2.1% compared to 2.4% expected in the economy this year. Meanwhile, the estimate for 2023 was raised from the 1.4% assumed at the beginning of the year due to unexpectedly strong consumer demand and labor market.

Capital Economics senior global economist Simon Macadam also believes that the expected slowdown in economic growth next year will be partly due to a more substantial rebound in 2023. However, he added that economists “have actually become more pessimistic about the outlook for 2024”.

This is due to beliefs that persistently strong demand will keep inflation higher for longer, pushing advanced economy Central Banks to keep rates high throughout the year.

“Demand is barely weakening, the labor market remains strong, and wages continue to rise,” notes Citi Chief Economist Nathan Sheets. – Some of the weakening in the economy (which was expected this year – IF-U) is being carried over to 2024.” In many countries, including the U.S., “there will be a recession, it will just come later,” he predicts.

Until a few months ago, the Federal Reserve was expected to start cutting rates this year. But the resilience of the U.S. economy indicates there is a small possibility that the Fed could raise borrowing costs by another quarter-point in September, to 5.5-5.75% per annum. And economists now expect the first rate cut to occur next spring.

The high probability that the U.S. economy will avoid recession this year “means the Fed will hold rates higher longer to fully suppress inflation, leading to slower growth in 2024,” according to Mark Zandi, chief economist at Moody’s Analytics.

On average, economists forecast the U.S. economy to rebound 0.6% in 2024 after expanding 1.9% at the end of this year.

Europe’s economies have also performed “somewhat better than expected” this year, with the exception of Germany, meaning the European Central Bank and the Bank of England are also likely to keep rates on hold for longer, Zandi said.

The ECB raised its deposit rate from minus 0.5% per annum in June 2022 to the current 3.75% and is not expected to cut it for most of next year. The Bank of England is forecast to increase its cost of borrowing by a further half a percent to 5.75% by the end of this year and is unlikely to start cutting it until the second half of 2024.

Christian Keller, head of economic research at Barclays, notes that the negative investor sentiment towards 2024 is also due to a slowdown in China’s GDP growth after a significant acceleration following the removal of anti-Kowitz restrictions.

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National Bank of Kazakhstan has raised its GDP growth forecast

The National Bank of Kazakhstan has raised its economic growth forecast for 2024-2025 to 4-5% per year from the previously expected 3.5-4.5%, the regulator said in a statement citing its updated macroeconomic forecasts.

This year, GDP growth is still expected to reach 4.2-5.2%.

“Forecasts for the growth of Kazakhstan’s economy in the medium term have been improved. The expansion of business activity will be driven by sustained domestic demand, increased budget expenditures and the recovery of the oil sector. (…) The risks to the GDP forecast are associated with possible problems of access to international markets for Kazakh exports, as well as the likelihood of not achieving the planned oil production,” the statement said.

In addition, the inflation forecast has been adjusted. In the short term, uncertainty about price growth has decreased. In the baseline scenario, inflation is projected to be in the range of 10-12% this year (previous forecast – 11-14%), 7.5-9.5% in 2024 (9-11%), and 5.5-7.5% in 2025 (corresponding to the previous forecast).

“At the same time, without taking into account the direct effect of the increase in utility tariffs, to which the NBU does not respond by changing the key policy rate, the medium-term inflation target of 5% is expected to be reached by the end of 2025. This will be facilitated by the further easing of pressure from the external environment and monetary conditions that are in the restraining zone,” the statement said.

The main risks to the inflation forecast, according to the National Bank, include increased fiscal stimulus, “unanchored inflation expectations,” accelerating inflation in Russia and a possible rise in world food prices due to the failure to renew the grain initiative. Another risk in the forecast is the continuation of pricing reforms in the Kazakh fuel and lubricants market.

Kazakhstan’s economy grew by 3.1% in 2022, with inflation at 20.3%.

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